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# A discount retailer of basic household necessities employs

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Senior Manager
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A discount retailer of basic household necessities employs [#permalink]

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Updated on: 22 May 2016, 06:22
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Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 72
Page: 145
Difficulty:

A discount retailer of basic household necessities employs thousands of people and pays most of them at the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased the retailer’s operating costs considerably, the retailer’s profits increased markedly.

Which of the following, if true, most helps to resolve the apparent paradox?

(A) Over half of the retailer’s operating costs consist of payroll expenditures; yet only a small percentage of those expenditures go to pay management salaries.
(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of others who earn, the minimum wage.
(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised the wage rate for employees who had been earning just above minimum wage.
(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.

Originally posted by lexis on 12 May 2008, 03:40.
Last edited by Skywalker18 on 22 May 2016, 06:22, edited 1 time in total.
Corrected the typo in option D - age to wage
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Re: A discount retailer of basic household necessities employs [#permalink]

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12 May 2008, 06:43
B

Profits, operating costs or revenue must be addressed in the solution. Distribution of operating expenses is unimportant.
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Re: A discount retailer of basic household necessities employs [#permalink]

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12 May 2008, 06:49
lexis wrote:
A discount retailer of basic household necessities employs thousands of people and pays most of them at
the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased
the retailer’s operating costs considerably, the retailer’s profits increased markedly.
Which of the following, if true, most helps to resolve the apparent paradox?
(A) Over half of the retailer’s operating costs consist of payroll expenditures; yet only a small percentage of
those expenditures go to pay management salaries.
(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of
others who earn, the minimum wage.
(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum
wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised the age rate for
employees who had been earning just above minimum wage.
(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.

B

The retailer will gain more money and offset that profit from the loss in increased minimum wage.
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Re: A discount retailer of basic household necessities employs [#permalink]

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12 May 2008, 12:42
B
A discount retailer of basic household necessities employs thousands of people and pays most of them at the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased the retailer’s operating costs considerably, the retailer’s profits increased markedly. -> there is some connection between the people who earn the minimum wage and the increased profits-> look for a choice that depicts the relationship between these two-> Only B Does it
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Re: A discount retailer of basic household necessities employs [#permalink]

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08 Jun 2011, 21:03
A discount retailer of basic household necessities employs thousands of people and pays most of them at the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased the retailer’s operating costs considerably, the retailer’s profits increased markedly.

Which of the following, if true, most helps to resolve the apparent paradox?
(A) Over half of the retailer’s operating costs consist of payroll expenditures; yet only a small percentage of those expenditures go to pay management salaries.
(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of others who earn, the minimum wage.
(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised the age rate for employees who had been earning just above minimum wage.
(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.
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Re: A discount retailer of basic household necessities employs [#permalink]

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09 Jun 2011, 02:21
1
ruturaj wrote:
A discount retailer of basic household necessities employs thousands of people and pays most of them at
the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased the retailer’s operating costs considerably, the retailer’s profits increased markedly.

choice D is what i thought of..please let me knw why its wrong

Which of the following, if true, most helps to resolve the apparent paradox?
Paradox: How the retailer made high profits despite high operating cost caused by the increase in minimum wage?

(A) Over half of the retailer’s operating costs consist of payroll expenditures; yet only a small percentage of
those expenditures go to pay management salaries.
This gives us a reason why the operating costs were increased, but it gives us no clue how the profits were increased.

(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of
others who earn, the minimum wage.
It gives us an association between customers and wage but a little cumbersome to understand. Let's keep this aside as a prospective answer choice and come back to it later.

Come back here after reading rest of the choices:
This is giving us a reason behind his profits. This is telling us that the increase in minimum wage of the people may result in increased volume of the customers, who earn minimum wage, and purchase from those customers.

CORRECT

(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum
wage rate went into effect.
Again, this gives us the reason for the soared production costs but no clue about the profits.

(D) When the increase in the minimum wage rate went into effect, the retailer also raised the age rate for
employees who had been earning just above minimum wage.
Here the retailer spent more money because of the minimum wage increase. To make matter worse for himself, the retailer further increased the wage of some of his employees. This surely makes the operating costs high, very high. But, why are you not telling me what's the factor that contributed to his profits. Not good.

(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.
This is a fact that's not giving me a reason for the profit. Just by raising cashiers pay won't give him the required profit.

Go back to B.

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Re: A discount retailer of basic household necessities employs [#permalink]

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13 Jun 2011, 03:07
option D leaves an open end here.What happens to those people who are no longer in the age bracket.Are they removed,are they being payed more.Essentially how do they contribute to the profits is the question to be answered here.
Thus D is POE'ed.

between A and B -

A does not give a clue about the increase in revenue.

B gives it clean.
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Re: A discount retailer of basic household necessities employs [#permalink]

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13 Jun 2011, 05:26
Choice B is the ans.
It establishes a relation between the wage earned and the expenditure individuals make.

If we see rest of the choices they say no reason to pacify the paradox.
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Re: A discount retailer of basic household necessities employs [#permalink]

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14 Apr 2013, 08:56
Blue Book CR72

Strengthen
Conclusion: Retailer's profits increased considerably even though operating costs increased markedly. Why?
Premise: Federal mandated increase of min. wage rate.
Thinking: Could be the increase in op. cost < profit. But considerably and markedly suggest the increase is about the same.

It's B: If retailer's customer is primarily people w min. wage, then the increase in min. wage caused them to shop more frequently or in a larger amount, thus explains the increase in profit despite the increase in op. cost.
Not D: Increase in min. wage, retailer raised wage rate to employees earning above min. wage suggests the opposite that profits should decrease due to unnecessary increase in op. cost.
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Re: A discount retailer of basic household necessities employs [#permalink]

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14 Apr 2013, 16:29
lexis wrote:
A discount retailer of basic household necessities employs thousands of people and pays most of them at
the minimum wage rate. Yet following a federally mandated increase of the minimum wage rate that increased
the retailer’s operating costs considerably, the retailer’s profits increased markedly.
Which of the following, if true, most helps to resolve the apparent paradox?
(A) Over half of the retailer’s operating costs consist of payroll expenditures; yet only a small percentage of
those expenditures go to pay management salaries.
(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of
others who earn, the minimum wage.
(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum
wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised the age rate for
employees who had been earning just above minimum wage.
(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.

Fairly easy Resolve the Paradox. In this kind of question, we need to find "new" element which can solve both sides of the paradox, not only one side. In addition, there's no conclusion here, just facts.

Fact: A discount retailer pays most of employees at the minimum wage rate
Fact: minimum wage increased. Operating expenses should increase. Profit should decrease.
Fact: But retailer's profit increased markedly.

Profit = Revenue - Cost.
What if Revenue increases faster than does cost. >>> Profit will increase.
D says: retailer's customers = people who earn minimum wages. If their income increase >>> they may purchase more >>> Retailer's profit may increase.

D is correct.

Hope it helps.
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Re: A discount retailer of basic household necessities employs [#permalink]

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28 Feb 2015, 06:44
The only answer choice wich adresses both parts of the argument (increase of costs and profits) is (B)

(B) The retailer’s customer base is made up primarily of people who earn, or who depend on the earnings of
others who earn, the minimum wage.

But actually I don't like this one either, because if people earne more they buy also more, OK, but this means that the revenue went up , but as we know revenue is not = Profits. They may sell more, but if the costs went up, they can earn "0"....... poorly structured argument.
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Re: A discount retailer of basic household necessities employs [#permalink]

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22 Nov 2015, 14:39
D has a typo. Not age but wage!

this clearly changes the meaning
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Re: A discount retailer of basic household necessities employs [#permalink]

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14 Apr 2016, 08:28
Cost increased yet profit has also increased. What is the flaw? Revenue - Cost = Profit. Cost Increase, Profit Increase so Revenue must increase. Answer choice will explain how the revenue can increase.
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Re: A discount retailer of basic household necessities employs [#permalink]

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14 Apr 2016, 08:37
1
QuanVsVerb wrote:
Cost increased yet profit has also increased. What is the flaw? Revenue - Cost = Profit. Cost Increase, Profit Increase so Revenue must increase. Answer choice will explain how the revenue can increase.

B gives a valid reason. customers of the retailer - people who earn min. wage. if people have more \$, then they spend more -> increased revenue.
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Re: A discount retailer of basic household necessities employs [#permalink]

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22 May 2016, 06:32
If the retailer's customer base includes a lot of people who earn minimum wage , then with increase in minimum wage , the purchasing power of such people will rise and they can spend more .

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Re: A discount retailer of basic household necessities employs [#permalink]

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12 Mar 2017, 15:57
we need to find an answer choice explaining why profits grew despide increased payroll costs. B touches the both sides of paradox
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Re: A discount retailer of basic household necessities employs [#permalink]

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16 Aug 2017, 09:32
Answer choice 'B' is correct - The statement explains the impact of the wage-rate increase on profits and increased buying power.
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Re: A discount retailer of basic household necessities employs   [#permalink] 16 Aug 2017, 09:32
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